Porsche shareholders OK capital hike

ChristophRauwald

STUTTGART (MarketWatch) — Porsche Automobil Holding SE received shareholder approval Tuesday for a 5 billion euro capital increase to significantly reduce debt and clear the way for forging a combination with Volkswagen AG, but the timing of the merger is uncertain as several legal and tax issues remain unresolved.

Wolfgang Porsche, supervisory board chairman at Porsche
POAHY, -0.18%
said late Tuesday that 88% of the company’s preference shareholders voted in favor of the capital increase, following the German sports-car maker’s longest annual general meeting in recent years.

Shareholders also gave approval to issue convertible bonds, participation rights and participating bonds, which are intended to give management more flexibility during the planned capital raising.

About 4,000 shareholders attended the meeting, according to a company spokesman, compared with about 5,500 at the previous shareholder meeting.

In an unusual twist at Porsche, however, the company’s preference shareholders were in the spotlight on Tuesday. Porsche needed approval from at least 75% of its preference shareholders, who are supposed to contribute half of the planned capital increase.

The company’s Porsche and Piech owner families had already agreed to subscribe to €2.5 billion common shares ahead of the shareholder meeting. The families still control 90% of Porsche’s common shares, which carry voting rights, after selling 10% to state-owned Qatar Holding LLC last year.

Porsche’s preference shareholders usually have little say at annual general meetings, as the owner families control the voting stock and important company decisions are made behind closed doors. This sparked a controversial discussion Tuesday over whether it makes sense for preference shareholders to subscribe to new shares without gaining any voting power.

Under the planned capital increase, Porsche shareholders can only subscribe to shares of the class they already own.

“Porsche SE’s liabilities will be reduced considerably through the capital increase — which is in the interest of all shareholders,” Porsche Chief Financial Officer Hans Dieter Poetsch said earlier Tuesday during a speech.

Poetsch said he’d expect Qatar to support the capital increase as it represents a step toward the joint goal to forge a combined company with Volkswagen. But he said it was up to Qatar to say to what extent it wants to exercise its subscription rights. A spokesman for Qatar Holding wasn’t immediately available for comment.

“Our timetable provides for the capital increase to be executed by May 30, 2011,” Poetsch said, adding that this deadline could be extended to Aug. 30, 2011, if pending legal issues caused delays. Porsche wants to use the proceeds from the capital increase to repay tranche A of the existing syndicated €2.5 billion loan, which is due June 30 next year.

“Proceeds in excess of this amount would be used to deleverage further,” Poetsch said.

Porsche’s debt ballooned during its ill-fated attempt to take over its much larger peer Volkswagen
VLKAY, -2.07%
and stands at around €6 billion. After a management shake-up, Porsche last year agreed to a merger under Volkswagen’s leadership.

Under a plan drafted last year, the merger between Volkswagen and Porsche was due to be finalized in 2011. But Porsche reiterated Tuesday that the merger might be delayed or tweaked if several pending legal and tax issues won’t be resolved in time. If these issues persist, Porsche’s holding firm could remain an independent entity for the time being, but the sale of its sports-car business to Volkswagen would still proceed.

A group of U.S. hedge funds filed a lawsuit over alleged market manipulation by Porsche during its stake-building in Volkswagen. Some investors in Germany threatened to take similar actions, but according to Porsche, no lawsuits have been filed yet.

Porsche Chief Executive Martin Winterkorn reiterated that the company regards the claims as unfounded. “We believe that the facts are on our side, and we have the better case in all of these legal issues,” he said.

“The merger is and remains our declared aim, and we continue to work towards it,” Winterkorn stressed, adding that “the likelihood of success is still good.”

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